I'm Andrew Obin, BofA's Multi-Industrials Analyst, and with us we have management of Trane Technologies. We have Dave Regnery, Chairman and CEO, and Chris Kuehn, Executive Vice President and CFO. I guess we'll just jump into the fireside, right? Great. Thanks everyone for coming today. Yeah. Appreciate it. Always a pleasure to have you here. Maybe we can start with tariffs and inflation now more visible than 90 days ago. Where do you see pressure points on price cost as we head into the second half?
Sure. Chris, I'll let you start.
Yeah, sure. As we said on our call a couple of weeks ago, it is a bit more inflationary from a tariff perspective and from a raw material input perspective than when we started the year in January. We think we have that captured in our guide. We raised our full year guide to 7% revenue growth and EPS growth 13%-15%. Look, we're gonna leverage our business operating system. Fortunately, we've had to get really good at this over the last five, six years from inflation and/or tariffs and looking to mitigation first, and then ultimately, if we need to deploy pricing.
Andrew, from a relative perspective, as a company that has been in region, for region for well over a decade, we have 21 factories that serve our North America business, and 20 of those factories are in the U.S. Over 95% of what we sell in the U.S. is either manufactured and/or assembled in the United States. We like having that framework. It's a little bit more inflationary based on some movement in tariff. It's a dynamic area but we think we have that captured in the guide for the year. Maybe some near term pressure on price versus inflation but over the medium to long term, we'll make sure that we're driving to a spread.
I think the industry announced a number of price increases in early May. Would those be normal, or would those be sort of to reflect the inflationary pressures?
I can't speak for the entire industry. I'll just say for us, what we did is we announced the price increase in February. It was effective April 1st. We have that baked into the guide that when we had our call just a couple of weeks ago. Again, it's a very dynamic environment in terms of cost, and we'll keep taking those inputs. We'll understand what we can do to mitigate with suppliers. Then, one of the areas we'll have to, may have to use is pricing to have an offset. We're gonna take all those inputs and I don't want to get in front of our teams in terms of what they're thinking.
Yeah, of course. I mean, just to reiterate a little bit what Chris said here. Look, our business operating system, we've proven how we could stay ahead of inflation and we've had a lot of practice over the last, I'll say five years. We're very comfortable we'll stay ahead of it this time as well.
Thank you. Maybe we can talk about commercial HVAC. Applied HVAC bookings were up over 106% in the quarter. How much of that strength is data center driven versus traditional verticals like healthcare, education, and government?
Yeah, look, our Applied bookings have been up over 100% for three quarters in a row. They're up 160 last quarter, but they've been up over 100% for the last three quarters. Data centers are very strong, okay? I would also tell you that we're strong in many other verticals as well. Healthcare, you mentioned, for one. Certainly, higher ed is another one that we've been very strong in. I take industrial, we've been strong in. Government, we've been very strong in whether it be municipal or state or federal. Look, we're the company out there that doesn't talk about the size of our business in data centers. Just to be fair, I'll explain to you the why, right?
We've made the investment in a direct sales force, and we've had that investment for decades now and it's a very expensive model to go to do our market in. However, when you have a direct channel, you have a very strong channel. We're not going to disclose the size of any vertical whether it be data centers or healthcare, or you pick another vertical, just because we don't need to be able to tell others that have not made that investment where we see opportunities. It's that reason why. I would tell you that we're very strong in data centers. We've been very strong in data centers for decades and we'll be very strong well into the future.
You should also know that this 100% plus growth that we've seen in Applied over the last three quarters is more than just data centers. If you think about it, you know, 95% plus of all of our account managers or our sales force does not call on data centers. There's a reason why we have strength that's broad-based.
Right. I mean, the team gets compensated for, regionally for the entire portfolio?
Absolutely. Well, most of our account managers or sales force are on 100% commission, so they're gonna go out and become experts in particular verticals or in particular geographic areas, so they could help serve our customers.
Thank you. Maybe just talk about pricing in Applied HVAC. I assume is it price cost positive?
We haven't done that or provided that info on an individual P&L or product line. I would say for the enterprise in the first quarter, we had a little over a point and a half of price. We've guided the year, it's probably approaching two points of price. When I think about applied systems, we're not only thinking about the equipment for day one, we're thinking about the service tail that comes with that.
Yeah
A many year journey. If we stick with data centers, for example, that service growth is really in front of us. What you're seeing with converting to revenues is really equipment. You can see, I think, strong performance in our Americas business and our, in our European business in terms of margins. We like the margins on the equipment. We like making sure that we have that customer for life.
Because it isn't just one application. It's a journey in terms of how they're thinking about their footprint in whatever vertical they're in. Build out capital expenditure plans for a customer for the next five years. Get through all of their assets and build with them a journey. That's how we think about customers for life. I'd leave it there.
Thank you. You know, just as applied is growing faster now than Unitary, how should we think about incremental margins, particular ones, Stellar and LiquidStack are fully integrated and operating at scale?
Yeah, look, we like the 25%-plus framework that we start generally every year with. We do that because the pipeline of investments that we have is very strong, and we like ensuring investors that we have the minimums we're gonna deliver.
If we can do better than that, we will. Last couple of years we've done a little better than that on the incrementals. That's where our guide was for this year, and where we're holding to 25%+. Let's see what happens by the time we get to July. We're halfway through the year, and obviously at that point well within what we think for the balance of the year will be.
You mentioned Stellar, you mentioned LiquidStack. I think we should talk a little bit about Stellar.
It's a great acquisition. It'll have some very modest EPS accretion this year. We said about $0.03 of accretion in year one.
We see that business in the next two to three years growing from $350 million of revenue that they generated last year, okay, prior to our ownership, to $1 billion of revenue, we think, in the next two to three years, with mid- to mid-teens EBITDA with a plus sign after that.
The other thing about Stellar is it's serving data centers today 100%, and it's modular chiller plants. Think of it as a chiller pumping station, as well as the electrical infrastructure that would get assembled on a job site. It's basically taking a lot of the skilled labor that's required on a job site and moving it to your factory, where it's very controlled. It really speeds up the installation process, as well as eliminating what they would call stick- built on the job site.
If you think about the scarcity of skilled labor, it's not unique to data centers. We're seeing this in many verticals. We believe that in the future, not, you know, Stellar will be serving more than just the data center vertical. This is very applicable in all of our vertical markets that we serve today. We're real excited about Stellar. It's only been about 60 days now, maybe 65 or so. Off to a great start, and we're excited about what the future is. Think about it. This is a business that's got a billion-dollar backlog. Half of it will ship this year. In two to three years, this will be a billion-dollar business at mid-teens EBITDA.
Think about the investments. A business that needs to ramp and scale, we know how to do that very well. Think about our business operating system being deployed to the business, learning from them what's worked for them but also at the same time, let's think about procurement, let's think about factory flow. There's a factory and set of factories we acquired in Florida. We're actually expanding. Given the backlog that we see in the pipelines, we're expanding to a new facility in Texas. You know, as I mentioned my numbers earlier of how many factories we have in the U.S., we should be adding two to that by the end of this year in terms of our investment b ut it'll take some time. We're gonna have investments this year that'll probably carry over into 2027.
Let's make sure we've got a nice scalable business here, and I think we know exactly how to do that.
Can we just sort of talk about lead times and I think they're all extending at the customer decision level. Does that give you better visibility or raise risk around lumpiness and execution?
Yeah, I think I tried to answer this on our earnings call. I think I got a lot of comments that maybe I didn't do a great answer. Look, lead times, we have published lead times or what we would publish to a contractor. Think of it as some of our products, the lead time could be weeks. Some of our products could be, you know, up to six months. Think of a centrifugal chiller. That's the lead time.
Over time, lead time has actually contracted, right. We've actually improved a lot of that. In fact, for the first time in a long time, we have quick ship programs that we're able to meet our customers' needs should they have an emergency. That's lead time. The second question is, what are customers asking for? Right. A customer would say, "I could give it to you in six months," but the customer will say, "I don't want it in six months. I want it in 12 months," or, "I want it in 18 months." They're giving us a lot more visibility to what they need, specifically in the data center vertical.
They're out there saying that, "Here's my plan for the next 12 months," or in some cases even 18 months, as to making sure that we have plenty line of sight to what their needs will be. As far as risk factor, I don't really see a risk factor. We only put something in our backlog when we have a signed PO. It's a signed PO. Our backlog of $10.7 billion at the end of the first quarter is all equipment. We do not put service in our backlog, so it's just equipment and there's all signed POs. Once there's a signed PO, you could assume especially, in the data center vertical, that there's a green light to start construction and power will be supplied to that data center.
From that perspective, I mean, we've been hearing, I think, in the channel some concerns about just delays of the field with the EPCs. Are you seeing that?
Well, I mean, I think that in the data center space, they're pretty aggressive build cycles. We haven't necessarily seen any, what I would call, delays that I would say are chronic. There can be delay on any job site, we haven't seen that become a trend yet. Yeah. I would tell you that there's very aggressive build cycles in data centers. We'll see how that progresses. I don't see that becoming a cancellation. Right. I see that being a pushout, right?
Once you have the approval and you have the power source, that data center is going to be built. We won't get a PO until that clearance has happened. I see it maybe there could be delays but I don't see any cancellations.
Right. These delays, is it enough to create volatility quarter to quarter versus your plan?
It could but I don't. I wouldn't see these things being, t hese could be, you know, I don't know, four-week, six-week, eight-week delays, but eventually that will start to lap itself, so your backlog will just move out.
Right.
I don't see it as a major risk right now.
Gotcha. No, appreciate it. You know, how sort of, you know, as you go into data centers, right? You've extended your data center toolkit with Stellar and LiquidStack. How do you think about growing your presence inside data center in terms of product, systems, life cycle services? Another thing I wanna add, there was an interview with Jensen, and he said that he wants to have partners in the room. You know, sort of to be able to design next generation.
Right
Of product and, you know, effectively sort of saying that specific product capabilities become less relevant. What becomes more relevant is to have the total system capability design install commission service. You know, how do you maintain the seat at the table with Nvidia, and what capabilities do you need to sort of to grow your presence there?
Yeah. I would say, well, we were in the room, okay? Number one, that's a good thing. I'm glad you brought that up. We are part of the reference design. In fact, it's actually published on Nvidia's website. We've had two different reference design. We did one about, I guess, eight months ago. We did another one that was just released and published probably about two months ago. He's right. You gotta think of it at a system level. It's not a component, it's at a system, right? This is the same philosophy we've had in buildings for forever, right? This is how we go to market. With the breadth of our portfolio, we're able to think of thing at a system level, right? It's not a particular component within the system.
It could be the greatest efficiency you want but if the whole system isn't delivering that efficiency, you're at a loss. That's where Jensen is getting it with, I'm assuming, by making that statement. We're really good at the thermal management system within the data center because we have many of the components and/or we have a partner that will have another some of those components, especially at the, at the cold plate, but we know how to interface with it. If you think of it at a system level, you're gonna open your mind as to what the possibilities are and how efficient to make that particular, you know, data center thermal management system. This isn't new to us. This is how we win in our core verticals, right?
It's funny when I was younger in my career, it was always used to have regulations about components within a product. Like the compressor has to be at a certain, you know, efficiency level. I was always thinking to myself, "What the heck does that matter about how efficient the compressor is if the entire product is inefficient?" It's now, everyone's gotten smarter on how they regulate products now, and it's no longer at a component level, it's now at the product level. You need to take the product and think of it at a system level, and that's what we do in not only in data centers but all the verticals today.
Thank you.
There's a massive service opportunity, by the way. You were talking about how to think about it at a system level. A massive service opportunity that's in front of us in data centers.
Some of your competitors have published data that sort of indicates that perhaps service opportunity related to data center is greater than regular. Would you care to comment?
I would say it's probably the same. These are applied systems that are very complex. I think that data center customers are very risk averse. They wanna make sure the OEM is doing the service work. Maybe that's what they're referring to. We're connected to all of our applied systems coming out. For us, it's probably the same.
Right. Maybe for some, but for you're there.
I'm sorry. I mean, I think one of the other points you touched on, Andrew, just to go back to, is this commissioning capability.
Yeah.
This is a competitive advantage that we have. It's not being able just to be able to supply the components to the system in a data center. It's being able to make sure they're gonna operate, and you commission them to make sure they're operating the right way. With over, well, 7,000 6,500 global technicians, we have a workforce that's geared to do this. We had a major co-lo come to our operations in Davidson, and I was telling them about how we commission and how we train technicians to commission data centers. I guess they came to verify, trust but verify.
They came in and we took them through our training center which is now state of the art, and they were just like, "Oh my gosh, you do all this." There was actually a class going on with technicians about, you know, how to commission in a data center. It's just the depth that we have, the knowledge that we have, the ability to invest in the technicians so they become the best possible. This particular co-lo gave us 100% of their order, which is somewhat unheard of in the data center space. It was all based on our ability to make sure that we can commission the products.
Sure. Maybe talk a little bit of M&A. I think M&A related to data center cooling has been picking up. How do you think about your strategic positioning, and what would it take for you to consider a larger deal in this space?
Well, I mean, as a major HVACR player, we're gonna get a chance to see obviously everything on a global basis. I say everything but the majority. We're gonna take a look at it. Obviously, we evaluate it. Look, we did acquire Stellar. We did acquire LiquidStack. Those were in that space. We always wanna make sure that we want to add value to our shareholders, right? At the end of the day, that's one of my and Chris's jobs, is to make sure that any acquisition is gonna be accretive to our business in the long term. You always have to be careful about what you're paying for these businesses to make sure that you're getting the proper returns. I would tell you that we've been very disciplined.
I think you've all seen that over the last, you know, several years, that we're a very disciplined, orchestrated, company here that's very, has added a lot of value with the M&A that we've been able to do.
Just another sort of topic, fairly controversial topic, we're getting a lot of incoming questions about the.
You like to give me the controversial ones. Go ahead.
Because you guys do well.
Okay.
You know, evolving architecture of the data centers.
You know, sort of more dry cooling, maybe less chiller content, you know, absorbing cooler chillers. A, how do you see the technology evolving? Second question, which I think is sort of more important, what do you think it does to thermal content per megawatt and service opportunity, right? Because it goes back to this sort of extreme design thing. Like the point solutions will evolve but, you know, I think a more relevant number I think is content per megawatt, your ability to capture it, and how much service does it generate?
Yeah.
I think there two ways of looking at it.
Yeah, I mean, at the end of the day, we're part of Reference Designs, which is some of the terminology that's used. Other we're part of data centers of the future. Some hyperscalers will use that terminology. We are designing data centers, think of it as what's the data center gonna look like in 18 months or 24 months, and there are different technologies that are being, you know, deployed in those developments. I guess a general rule I would say is think of chillers being smarter and more integrated. As the chips can have a higher water temperature to be cooled at, the chillers will be smarter as to how they remove the heat that's there.
Think about it as if the water is hitting the cold plate at a certain level, right. Whatever that level is, it's leaving at a temperature that's much higher. Think of it as 20-25 degrees Fahrenheit higher. That's the heat that needs to be removed. Regardless of what you started, if it's 45 degrees Celsius, it's still gonna have to be removed, and how you remove that is why I say chillers will be smarter. Think of it as a chiller farm being able to understand what mode that chiller farm should operate in. Should I be in a free cooling mode, okay. Depending on the ambient air? Maybe. Should I be in a vapor compression mode? Maybe. Maybe not all the chillers are operating in a particular mode.
Maybe only some of them are, and you're worried more about the leaving water temperature out of that chiller farm or segments of that chiller farm. Those are all things that are evolving that we're working on. I haven't seen any Reference Designs or data center of the future that does not have a chiller in it. Okay? How those chillers are operating, yes, I've seen lots of different variations on that.
How to think about dollar yeah, right.
I mean. It's such a small portion of the total, you know, of total cost for data center and it's so critical. Like the feedback we get is that it's just gonna get more and more complex.
It's certainly getting more complex because what you're doing now is you're building like dry coolers into your chiller, right? Maybe we won't even call them chillers in the future, right? These things are different. The use of water in a data center is, you don't wanna necessarily use evaporative cooling, right? You use a lot of water. Many colos and hyperscalers will say, "We're gonna have all closed loop systems." Well, there's a different complication associated with that. We have some that are looking for how can we go from chiller to chip, right? Interesting concept. We have a hyperscaler that's working on that. How do you do that? Well, you do it with deionized water. You do it with stainless steel components because it's about purity of water. How do you maintain water flows? All that is part of this chillers getting smarter.
Right.
In the future kind of mindset that you need to have.
Maybe last data center question. How much exposure do you have to neoclouds, and is that portion of the market evolving differently than sort of more hyperscaler focused?
I think neocloud they're getting bigger, we can see if they are or not. I think we deal with all chiller customers, It'd to be specific with a name, and then I probably wouldn't tell you anyway. We deal with everyone, so everyone's our friend if they're a customer.
Gotcha. Maybe on residential, since first quarter earnings, what has the residential market looked like? How has the start to the selling season been?
Want me to start?
Sure.
Yeah. I mean, first quarter, we had guided residential down around 20%. The business did better than that. It was down about mid-single digits. I think the most important part was entering the year, we wanted the inventory in the channel to be at the right levels. We took some drastic actions in the fourth quarter internally from a production perspective. We took about a third of the production days out of our residential business in the fourth quarter. We also decided starting this year we would level load the factories. The path usually has been you ramp up production, you know, through the first quarter into the second quarter to build inventory to be ready for season. This year we said, "Okay, we're gonna take the inventories to the right level in the channel.
We're gonna level load production this year. Ultimately had a good start to the first quarter. It is just the first quarter, right? It's maybe the least significant quarter of the four for residential. What we're doing this year, again, that level loading, it'll put a little pressure on the first half of the year when you think on a year-over-year basis incrementals. That'll be a nice tailwind for the second half, though.
Also we have easier comps going to the second half of the year, just given the challenges we saw with two pre-buys last year, refrigerant change, and ultimately maybe not, whether that was as cooperative. We raised our guidance to say flattish for the year for residential. It means volumes will be down, right? There'll be some positive price in there. Very happy where the channel started the year and happy where the channel ended at the end of the first quarter.
Yeah, look, we're probably the ones that are more bullish on residential than maybe others. Like, 2025 was a really strange year for residential, right? You had a pre-buy with refrigerant. You could argue you had another pre-buy with tariffs and then all of a sudden you had a refrigerant problem where you couldn't install new units, so you couldn't burn through the inventory, and you had a really short selling season, meaning it was a lot cooler last year than had been in a long time. We could argue about what of that's gonna repeat in 2026, but the first three are not. We'll see how the year progresses but as Chris said, it's the first quarter, but we're off to a good start in that business.
With level loading, does that mean that insofar as sell in?
No, no, think of it more as what you mean't factory output.
Right.
Instead of ramping up your factory output in the first four months of the year.
Right
Then letting it drift as you see demand in the back half, we're basically just gonna manufacture at the same level throughout the year.
Right. From that perspective, it means that there's not going to be a lot of variability to second quarter unless demand is really well outside your range.
You have inventory that buffers that, your own inventory. If you had additional need, you would be able to satisfy that.
With the-
Inventory levels. Yeah, you would just ramp up your rates. What it does is it means less unit volume through your factories in the first half of the year, which means less absorption.
Yeah.
Then you'll have more absorption in the back half of the year. If you remember, in the fourth quarter, we made the decision that, okay, we're gonna get this excess inventory in the field adjusted, so we took a third of our production days out of our factory. That was not an easy decision for a lot of reasons. Forget about the financial side of it, just think about the impact to our employees. We wanted to get that over with and, we're happy to say right now inventory's in a good position right now within our residential business.
In terms of demand, so the point is that if demand is stronger-
We'll be okay.
You will, you'll work down the inventory.
Yeah, we'll buffer with inventory.
We have the availability for that, we did guide the second quarter to about flattish.
Yeah, yeah.
Potential and, you know, growth in the second half of the year really off of easy comps. Let's see how the year kind of plays out, but the team's really executing well there, where they started the year and ultimately managing the inventory and then taking the decisions around, as we said, the factory production, the level load.
How should we think about replacement versus discretionary upgrades in residential as sort of affordability pressures persist and, you know, there's a mix shift towards things like Oxbox?
Is it okay, are you talking about, like, higher SEER to lower SEER or are you talking repair versus replace or?
Well, it's just people. Yeah, that's right. It's, like, people are just.
Yeah
The things are so expensive.
Repair versus replace, I don't think you could tell in the first quarter, right? It's a shoulder season.
Yeah.
We'll see how that plays out as we go through the year. We have not seen a mix change, so we lead in high SEER products.
Right.
We really haven't seen a mix change. It's just the first quarter, so we'll see how the year progresses, but right now we haven't seen that.
Excellent. Maybe just focus on transport. You know, I think transport remains one of the slower recovering pieces of the portfolio.
We're in year five of a two-year downturn.
Yeah. You know.
I think we are seeing green shoots there. I mean, look, I know this business very well, the fleets are very old and the good trucking companies, most of these trucking companies are very well run. They know there's a cost to having an old fleet. As an underlying macro, I would say that's one thing that's out there. The other is if you look at what spot rates are doing, they've actually are increasing. If you look at rejection rates, meaning that I have a contract, but you go show up and it's like, "I can't deliver," because they want you to go on the spot side, that's increasing. Utilization of fleet is increasing. Those are all positive signs for that business.
I've been wrong because last year I was probably up here, maybe not at this particular conference, but another conference saying, "The back half of the year is gonna be a lot stronger and we're gonna have a recovery," and that didn't happen. I guess I'll say I'm more optimistic this year than I was last year about Thermo King recovering and which is a good sign for Trane Technologies. You think about it, we had a residential business that was, you know, had a terrible 2025 for the reasons I explained. You have Thermo King that's been down for at least, you know.
Years.
Four plus years now. Both of those we're seeing that the back half of the year, those are gonna be positive and we think we're gonna have positive momentum going into 2027. On the Thermo King business specifically, if you look at ACT, their projections for 2027, we're not as bullish as they are, okay? We believe that 2027 will be a strong year, we don't believe we'll see the inflection point up that they're predicting. I think the demand might be there, I don't know if the trailer OEMs will be able to meet that. Because we're a reefer that goes on a trailer, if you don't have a trailer, you're not gonna sell the reefer.
Right.
We'll see how that plays out, but we're optimistic about the future in Thermo King.
What does the normalized margin profile look for transport once volumes recover relative to historical peaks?
I would say that we like the margins in that business today, and we'll like the margins I think even better when you get more volumes coming through the factories with more units. At the same time, we made some really good investments in this business for the last three to four years when markets have been down. We're not gonna be out there trying to sell the same products we had four years ago and say, "Here they are." They're maybe a bit more expensive due to inflation. They're more energy efficient, more options around electrification, to hybrid, to more efficient even gas-powered units. I think that team has done a phenomenal job outperforming in markets. The same would be within our EMEA transport team as well, right?
There's a market that hasn't necessarily grown either for many, many years, and they've outperformed those markets, and it really comes back to the innovation flywheel of where they've invested. I think as we see these markets start to recover, we'll like the incrementals, and I think gives us a lot of confidence we should be 25% plus and, well, that's why we like the plus sign after that. It's a commitment that we'll be at 25%, and can it get better? We'll see if it can.
For EMEA Thermo King, what's driving that performance over the past several years? What are you doing to win market share versus your competitors?
I'll start. I mean, look, I think it does come back to the innovation. Again, this is a team that, as Dave said earlier, right? Europe is still very focused on sustainability. It's focused on decarbonization, and especially when you get to city centers, there's also noise abatement concerns. You want quiet systems, you want running on electricity, and that team has led with that, with that innovation, all the way from trailers down to truck units to smaller units. They have a fleet. They have a choice. If you want something that's hybrid, you've got that, and you can go full gas as well. What that team's also done is they've done a number of acquisitions actually over the last 12 to 15 months.
Where we've typically been two-step distribution, we've actually bought back some of that distribution to go direct in certain markets. This is, you know, bilateral with the owner. They wanted to sell. We said, "Okay, we're gonna come in, and we'll buy back the business." In some cases, it's a really well-run business. Let's go grow what we have. In some, there's opportunities there for share and so let's invest in the business, let's go direct here in those markets, and let's ultimately grow back the share where we need to and/or keep expanding where we're at. It's we just actually closed on the fourth acquisition just last week in Germany, one of the larger providers of transport equipment in Germany. We bought back that distribution.
They've now got a combination or a mixed model, more opportunities now to get touching to the service side. Think about the dealer is the one that would do the service for the units. By going direct, we have access to that service, how do we make sure we're servicing customers effectively?
Just talking about service. Service is now a third of the revenue growing low teens. The question is, do data centers accelerate service growth through the end of the decade?
I think that any time you expand your installed base, it's gonna accelerate service. And obviously, we're doing a lot of data center work, so I think it's gonna be good for our service business. Our service business is one third of the company, and it has demonstrated results of a compound annual growth rate of low teens for the last seven years. This is a very resilient business, a very proven business. It's got an operating system built around it that is very robust. Look, we love investing in our service business. I love what we're doing on the digital side of our service business. I love what we're doing on the virtual engineer within our service business with ARIA, making our technicians smarter in front of customers.
This is all part of our philosophy and, it's a business that's one-third of the company that has demonstrated compound annual growth rate of 11% over the last seven years.
As maybe last question, as service mix rises, what's the ceiling for enterprise margins without sacrificing growth or investment?
We love the 25% +, right? Look, could you leverage more in a particular quarter? For sure. You know, I would tell you that we like optionality. We love to invest in ourselves because we like to think about the long term. I've probably told this group before, the easiest decision a CEO can make is to cut investments, because in the short term, you look like a hero. In a long term, you don't have a business, or you're not gonna be able to hit the growth rates. Look at our growth rates. Look at the model that we have. We love investing in ourselves for the long term, and that's a model that we've been able to prove, and it's a model that you're gonna see from us well into the future.
Our model is 25% +, and we assume that within that, we're always gonna have lots of ample capital to invest in ourselves, and that's what we've been able to do, and that's why we've become the growth company that we are.
On that note, we'll end. Thank you.
All right. Thanks everyone for your attention today, and talk to you all soon.